A lifetime mortgage enables you to release a tax-free cash lump sum from the value of your home. You will continue to own your home completely and retain the right to live in it for the rest of your life.
You can choose to repay the interest each month or make no monthly payments and roll up the interest into the loan amount. The amount borrowed plus accrued interest is usually repaid from the proceeds of the sale of your property when you die or move permanently into long-term care.
- Take out a loan that is secured on your home, usually between 20 and 50 per cent. The older you are the higher percentage you will be eligible to borrow.
- Continue to own your own home, although you will have to pay back the mortgage on it;
- Repay the mortgage from the proceeds of the sale of your home when you die, or if you move out of it (perhaps into a care home).
The majority of Lifetime Mortgages also come with a ‘no negative equity’ guarantee. This means that if you live longer than expected, or even if house prices go down, the amount owed will never exceed the open market value of your home when it comes to be sold.
Home reversion plans
A home reversion plan involves selling part or all of your home to a home reversion provider. You receive the sale proceeds as cash, which can be paid as regular instalments or as a single lump sum.
On any home reversion plan that is recommended, you retain the right to stay in your property rent-free for the rest of your life. You will receive less than the full market value of your home, because the buyer cannot re-sell the property until you die or move permanently into long-term care.
- Sell all or part of your home to a reversion company;
- No longer own your own home, but continue to live there as a tenant of the reversion company;
- The home is sold when you die, or if you move out of it (perhaps into a care home).
A Home Reversion plan is a sale and not a loan; therefore, there is no interest to pay. Instead, the Home Reversion provider will pay less for the relevant proportion of your home than it would be worth on the open market. Typically, you will receive between 35% and 60% of its market value depending on your age. So, for instance, if you sold 50% of a £200,000 property you could receive between £35,000 and £60,000 rather than £100,000.